Where our pensions came from

Published in the Toronto Star, Sun Apr 24 2011

by Sarah Barmak, Special to the Star

Pensions are both a hot-button issue and a dry, difficult puzzle. They have become a focal point in the federal election campaign, as politicians court the middle-aged and senior vote with newfangled retirement options and proposed Canada Pension Plan overhauls. All this with good reason, as pensions represent billions of dollars in assets. Companies have been doing their own reckoning, looking to reduce their obligations with pension models that cost employers less.

While politicians and business scheme, of course, we continue to grow old. And amid the hand wringing and minutiae, it’s easy to lose sight of the fact that we’ve been here before.

Although pensions for the masses are relatively new in human history, they have been the topic of perennial debate since they were invented. To illuminate the election debates, we looked into how the pension came to be, with a timeline.

1700s: The first state pensions were given to military men only. The French Revolution fostered the rise of the idea of universal old-age pensions, with Thomas Paine arguing anyone over 50 who was in need should receive a small sum. And with the increased move to cities, the breakdown of farming communities that had provided care for the elderly created a growing need for a way to keep aging workers out of poorhouses, explains Daniel Béland, a professor at the Johnson-Shoyama Graduate School of Public Policy at the University of Saskatchewan.

1880s: Many trace the first pension plan — then called social assistance — to the late-19th century German Chancellor Otto von Bismarck. But the realpolitik leader’s motives we not altruistic. To fend off socialism’s spread across Europe, he devised the public pension as a way to encourage workers’ loyalty to the state and reduce the appeal of Marxist ideas. “Anybody who has before him the prospect of a pension…is much happier and more contented with his lot, much more tractable and easy to manage…” wrote Bismarck.

Early 20th century: The program caught on in England and France, and eventually a young Theodore Roosevelt was campaigning for it in the U.S. “We must protect the crushable elements at the base of our present industrial structure,” he said in one 1912 speech.

1927: Canada developed its first old-age pension, but it was flawed. It was limited to those who were over 70 and destitute, and to only $20 a month at the most.

1934: It took the Great Depression to make old-age pensions a national issue in the U.S. Poverty among the elderly increased dramatically, and President Franklin D. Roosevelt’s mailbox was inundated with frank pictures of destitution. One came from Mrs. M.A. Zoller, Beaumont, Texas. Dated July 13, 1933, it read: “I write to ask your assistance in securing an old age pension for my mother Mrs. Martha Gilbert…. She is helpless, suffering from Sugar Diabetes …. I am a widow; have spent all my savings in caring for her…. With no money and no place to go unless it be to the poor house, I cannot rent my rooms now for she demands constant care of attention….” Roosevelt announced his plan to start Social Security to Congress the following year, drawing inspiration from Bismarck and European social welfare.

1935: The pension movement was growing. By this year, 34 countries had some kind of social insurance program to provide for old age.

1951: Old Age Security (OAS) was introduced in Canada as a federal, universal at-rate pension covering citizens aged 70 and older. Pro-labour politicians, including those in the Co-operative Commonwealth Federation (CCF), criticized the benefits as too low.

1956: Problems with OAS persisted. It wasn’t indexed to inflation, which according to opposition Progressive Conservative leader John Diefenbaker put seniors “in an impossible position.” In 1956, the Liberal government created the registered retirement savings plan (RRSP) — an implicit endorsement of the idea of state-subsidized private savings over the public system. A popular belief abounded that people should rely very little on public pensions.

1950s: The postwar era sees a rise in “welfare enterprise.” Corporations competed to offer pension schemes to employees, investments which sociologist Robin Blackburn has argued helped underpin the surging era of growth of the 1950s and 1960s.

1966: The Canada Pension Plan was established, protecting workers from loss of income in retirement, with benefits indexed to the cost of living. It was passed into law by the Liberals, who according to scholar Penny Bryden had become influenced by a younger, more progressive element since being defeated by the Progressive Conservatives in 1957.

1985: Serious debate about pensions was rekindled when Prime Minister Brian Mulroney, blaming deficits, announced he would partly de-index pensions and family allowances. The move was seen as a betrayal of what had over the decades become a staunch Canadian value. After an enormous public backlash — including one angry protester named Solange Denis, who faced him and said, “You lied to us” — he was forced to back down.

2000: People age 50 or over make up 17 per cent of the population, as improved longevity and a slowing birthrate shift demographics. A largely partisan debate grows about the nation’s priorities, as business demands tax cuts while a body of the public argues for improvement of public pensions and greater protection for private ones like company pensions.

2009: A major Canadian company, Nortel files for bankruptcy, leaving 20,000 former workers with an underfunded pension plan and underlining weakness in the private system. Reverberations are being felt in the current election season, as a group of former workers rally to unseat Conservative MPs over their lack of support during the bankruptcy.

2010: After months of talk of ways to improve the CPP, Prime Minister Stephen Harper announced a voluntary pooled pension plan aimed at aiding the self-employed and small businesses — a scheme that was sharply criticized by union leaders. At a campaign stop NDP leader Jack Layton, who has urged the government to double CPP payouts, slammed Harper for asking Canadians to “double down on the private plans that all too often have failed them in the past. It’s simply not good enough.”